Las Vegas Hotels: Already a Winning Bet in 2015

By Markets Fool.com

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Source: Las Vegas Convention and Visitor Authority.

Even though Las Vegas gaming revenue dropped in 2014, non-gaming revenue growth continues to be a highlight for companies there. During 2014, companies relied on non-gaming services like entertainment, dining, and most of all, hotel operations, to drive new revenue growth.

Monthly stats for Las Vegas, reported by the Las Vegas Convention and Visitor Authority, show that Vegas hotels are already winning again in 2015.In January, the most recent month of reported data, average daily room rates were up 15% year over year, with nearly equal occupancy rates. Because of that, total revenue per available room (RevPAR) for these hotel companies was up 12% year over year.

Convention space usage was also up 8% in January year over year. Convention segment growth, driven by the increasing number of companies and groups using Las Vegas as a hub to meet with employees and members from across the country, also helps hotel revenue when these convention visitors need a place to sleep.

Hotel, convention, and other non-gaming revenue growth has helped companies likeWynn Resorts and other smaller Las Vegas players in the last year, but it'sMGM Resorts International that's clocking the biggest wins from this trend.

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Las Vegas is no longer a bet on gambling
Following the 2008 U.S. recession, the Las Vegas economy took a major dive, especially in terms of gaming revenue, which dropped 20% from 2008 to 2010.By 2011, gaming revenue was back on the rise, and in 2013, gaming revenue in Las Vegas was up nearly as high as it was in 2007. But in 2014, gaming revenue dropped slightly year over year.

During January of this year, gaming revenue returned to growth, increasing 7.8% year over year. However, gaming revenue growth is not what makes Las Vegas look attractive now.

For one thing,gaming accounted for just more than one-third of the total revenue for the major casinos on the Vegas Strip in 2014. That's the lowest percentage of overall revenue that gaming has accounted for in Las Vegas yet.

The winner on this trend
During the last decade, Wynn Resorts has put most of its focus on Macau. Up until 2013, that seemed like a solid bet, and Wynn made huge gains in earnings and share price because of it. But since 2014, due to issues of corruption and government intervention, Macau has seen massive declines in its gaming revenue. As a result, Wynn's stock price has also taken a major nosedive, losing about half of its value in less than a year.

To be fair, MGM has also seen a drop in share price, as it is also tied somewhat to the Macau market. However, while Wynn still gets around two-thirds of its revenue from Macau, MGM gets most of its revenue from the U.S. -- mainly Las Vegas.Even though Wynn is bigger than MGM by total market cap, at about $13 billion compared to $9 billion, Wynn is a much smaller bet on Las Vegas by operations and number of properties there, and especially by number of available hotel rooms.

With 27% of the total available hotel rooms in Las Vegas, compared to just 3% for Wynn (including its Wynn Encore property), MGM is by far the biggest hotel operator in Vegas, and also the one posting the best growth in this segment in 2014. MGM'sLas Vegas strip propertiesposted a 7% increase in revenue per available room in 2014.

MGM's Q4 2014 Domestic Hotel Operations

2014

2013

Occupancy %

88%

85%

Average Daily Rate (ADR)

$138

$133

Revenue per Available Room (REVPAR)

$121

$114

During the most recent quarter, MGM's hotel occupancy, daily rates, and RevPAR have each increased. Combine that recent growth with the numbers reported by theLas Vegas Convention and Visitor Authority about a rise in daily rates and RevPAR in January, and you can expect that MGM will once again be the Las Vegas hotel winner when it reports its Q1 earnings.

Does this mean MGM is worth a bet now?
Non-gaming growth, such as hotel revenue, is driving new growth in Las Vegas now. In terms of hotel revenue growth, MGM is the winner by far.

But does this segment alone stand as a reason to bet on MGM now? Regardless of this growth in Vegas in the last quarter, MGM still posted a net loss -- a larger one than it posted in the same quarter a year prior. Much of this was because of issues in Macau, as well as a one-time tax liability for nearly $40 million.

The company does have a good chance to finally start reporting profits in 2015, helped by domestic non-gaming growth. Still, it might be a good idea to continue watching for when hotel revenue growth can drive companywide profitability at MGM before making a bet.

The article Las Vegas Hotels: Already a Winning Bet in 2015 originally appeared on Fool.com.

Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.